• ~ ' MECLEOD & CO. LTD v. STATE OF ORISSA November 23 & Ors.

Appeal by Specia!"leave fr()m the Judgment and Order d.ated the 16th April, 1971 oJ the Orissa High Court in O.J.C.No.24 of 66. V. S. Desai, S. Bhandare and·· T. Sridharan with him for the C Appellant .• · ~' Govinga Mukhoty, G. S. Chatterjee and Sujeet K. Bhattacharya for the' Respondents. ) The Judgment of the Court was delivered by TuLZAPURKAR, J. This app.eal by special leave raises the question whether the appellant-company ~ould be regarded as a 'de~ler' within the meaning of sec.2(5) read with the Explanation .thereto of the Orissa Taxation (on goods carried by Road and Inland Waterways) Act, 1959 (hereinafter referred to as the Orissa Taxation· Act and which was validated by Act of 1968) a~d as such was liable to be assessed under the Act for the quarters covering the period· 30-9' 1960 to 31-3-1962? The question-which pertains to th.e proper interpreta tion of the aforesaid provisions of the Act arises in the following circumstances. •· Nellimarla Jute Mills Co. Ltd., and Chitavalsah Jute Mills Co. Ltd. are two independent and separate companies having their regis tered offices at J\;1ecleod House, 3, Nctaji Subhas Road, Calcutta and · additional places of business in several .part of the country including one at Kendupatna, P. 0. Kendupatna, District Cuttack, in the State of Orissa. These two public Limited Companies primarily carried on the - business of jute jllanufacturing and owned jute mills in .different parts of the country, such as, Nellimaria'Jute Mills Co. Ltd,. owing Jute Mills at Elore iii Andhra Pradesh and Chitavalsah Jute Mills Co. Ltd. owing· Jute Mills:at Chitavalsah in Andbra Pradesh. The appe!lant-c0 mpany (M/s. Mccleod & Co. Ltd. having its Regis tered Office at Mccleod House, 3, Netaji Subhas Road, Calcutta), by D E F G .. I H 868 SUPREME COURT REPORTS [I 984) . i s.c.li.. · virtue of A~reernents with the said two jute mills . was appointed the ·'Managing Agent'· for Chitavalsah Juie. Mills. Co. Ltd. and the 'secretary & Treasurer' for Nellimarla Jute Mills Co. Ltd. The appellant-company did not do any business nor had any place of its · business in. any. paft of the ·State of Orissa. But as the Managing· Agent of ·Chitavalsah and as the Secretary and Treasurer of' their jute i~ .their NeJlimara lqoked after the ·work ·of storing It may godowns at Kendupatna, Dlstrict Cutt~ck, State of Ori8'a. be stated that under cl.(4)of the Agreement dated 7-10-1960 with Nellimarla the appellant-co!!rpany was precluded .from and was "not entitled (unless and except to the extent they are authorised hy the Board of Directors) to s.ell any goods -0r articles manufactured or ·obtain, o·r acquire · produced by the Coinpa.ny or ·to purchase, the purpbses of the machinery.- stores,· goods or materials In ~ther. words, the prohibition Company or to sell tl1e .same." contained in cl.(4). ofthe Agreement with Nelfim.arla merely perta ined to selling or purchasing of goods or materials for the purposes ·of~the company . but left intact tl:e · appellaht; company's powers to sto;e jute of the Company in its godowns at Kendupatna in th.e .State• of Orissa. ·Since the two jute mills carried on the trade of purchasing and storing of jute, inter alia at Kendupatna, they were registered as 'Dealers' under the Orissa Taxation Act and the Rule.s framed. thereirnder, each one having a separate Registrntion Certificate •. It . may be stated that N ellimarla had filed Returns of their iurn-civer for all the quarters from 30-9-1959 to 30-6-196'.; and had paid the ad~itted tax for.the said period under the ,\ct. Similarly, Chitava lsah had filed Returns of their turn~oveiO for all quarters from 30-9-1959 to· 31-3-1960 and had paid the admitted tax. for the said period under the Act. It appears that thereafter some time in.1963 the said jute companies filed writ petitions.in the Oriss·a High Court. under· Art.226 of the Constitution challenging the validity of the original Act of 1959 as also the Validation Act of 1968 and obtained foterim stay of pro.cecdings under. t.he said Act but we were i.nforn\ed by counsel that. ultimately the challenge to the validity of the Acts failed; however; we are not concerned with those proceedings in- this In the ffiJ"'1while, seven ex parte assessment orders were ·appeal. passed against.the appellant-company· by the Assistant Tax Offiper for quarters coveting the period froin 30-9-1960 to 31"-.3-1962 on the business of the. said two companies on. tnbe ·asis that appellant company was a 'dealer' (as agent of both the companies) within the A B c E F G H J "· Miior'.Eoo AND co. v. ORISSA (Tulzap~rkar, i.) 869 meaning of sec.2(5) read with. the faplanation th,.reto and had c·arried on -the business of stocking or storing jute and tarrying the same by motor boats at Kendupatna in District Cuttack, State of Orissa and the appellant-company received. a notiGe of dem·a.nd along with. the said assessment ord_ers claim_ing a fotal amount of Rs.74,125 inclusive .of penalty. Against the said assessment orders the appellant:· company preferred appeals u~der sec.12(1) of the Act ti:> Assista, nt Commissioner of Taxes . but th.e appeals Jailed. The appellant-company preferred_ re.visions under sec.12(3) of the Act to the Commissioner of Taxes, Orissa but the Commissioner of Taxes by'his order dated 15th Octbber, 1965 dismissed the"revisions and confirmed the Assessment Orders · made agajnst the appellallt company. Aggrieved by ihe order of the Commissioner of Taxes the appellant-company approached the .High Court by means of a Writ Petit.ion under Art.226 of the. Constitution and· challenged the ·assessments made against them on the basis. that as agent" of the two 'Dealer' within the meaning of sec.2(5) JuterCompanies it was not a ·read with the Expfanation. thereto of the Orissa Taxation Aet. The assessment .orders were also challenged_o'n the ground.tbat these had . . been :->asscd withotit following .the principles· of natural justice. inas .. much as the appellant-company had_ no opportunity to meet the materials, particularly the Inspector's Report relied upon by the Assistant Taxing Officer while making· the assessments. -The High ·Court by its judgment dated )6th April, 1971 negatived appellant-company's principal contention that it could not be regar ded as a 'Dealer' within the meanfog af sec.2(5). read with' Explana: tion thereto of the'. Act and therefore it c'ould not be assessed at all . . under the Act but set aside the assessment orders and remanded the assessment proceedings to. the taxing authority to pa;s fresh orders on the grou_nd ihat through notice of the assessment proceedings had actually been served on the appellant-company ·the assessment orders had been made arbitrarily without the app~llani-company getting·a reasonable opportunity of meeting or· explaining the materials .in the Inspector's -Report which had beert relied npon by the Assessing Officer for makii1g the _assessment. · Though the '.matter has been ·remanded by _the· 6igh Court for fresh assessment, ihe principal . . contention or the appellant-company which goes to the root of the matter hav._ing been negatived by the High Court the appellant company has preferred this appeal t_o this Court chaUen.ging the High ·· Court's view thereon. · . · . • • I A B , . c D .. E F G H A n c D E F G- H 870 SOPR.llMB COURT REPORTS [1984] 1 s.c.il. two' . could not be proceded against or assessed. .Counsel for the appellant-company put forward a couple of contentions in·· support of his case that on the facts and circumstances obtaining here in regard to the business of stocking or storing their jute and transporting the same by motor boats within the State of Qrissa which was done by the two jute companies at Kendupatna in District Cuttack, the jute companies . (the ·Principals) who had registered themselves as 'dealers' under the Act could be assessed by thetaxing authorities and not.the appellant-company who was not a 'c!aler' as defined by Sec.2(5) read with the Explanation thereto of the Act. In the first place Counsel urged that though it was tru'e that the appellant·company was acting as the agent of the - two jute companies during the relevant quarters it did not have any place of busin.ess either at Kendupatna· or· anywhere else ii) the State of Orissa and unless it had -such place of business in the State of Orissa which could facilitate the assessment, the appellant-company In other words; the· submission was that under the Explanation an artificial definition of a 'dealer' by means of a ,deeming clause had been provided with the objec! of facilitating tlie assessment proce.edings against non-resident principals which could not be achieved if the agent was also a non resident in the State of Orissa, Secondly, cou!isel contended that jute companies (Principals) were ·not 'non-resident dealer'. as r~quired liy the Explanation since each one had a place of business of its own atKendupatna District Cuttack. Relying on these aspects counsel for the .appellant c~mpany. contended that on. true construction of · the relevant provision the appellant. company could not be held to be a dealer and as such the assessing authoriW hed no jurisdic- . tion or power to proceed against or assess the appellant-company in respect of the business· of the principals (the jute companies). For the reasons_ which" we shall indicate presently we do not find any substance in either of the contentions and both these are liable to be rejected Obviously the two contentions urged by counsel for the appel lant-company have.a bearing on the proper construction to be placed on sec.2(.5) read with the Explanation of the Otissa Taxation Act. 'It was not cltsputed before us that under the charging provision ·con- - tained in sec.3 of the Act the Taxing event is the carriage of jute and other articles· by motor vehicle, cart, trolley-, boat etc. within the State of Orissa and the liability to be. asses·sed in that behalf under the·provisions of the Act has been laid upori a 'dealer' as defined in· sec.2(5) and the Explanation thereto of the Act. ·· Secti~n 2(5) and the Explanation theretb run as under : " MilCL.BOD AND co .•. ORISSA (Tuizapurk'ar, J.) 871 · "2(5) "Dealer" means any per.son who stores at one time jute in excess of fifty maunds or bamboos in excess of one thousand in number or )<:endu ·leaves in excess of one standard inaund or minerals and mineralores before or after being carried by motor vehicle, cart, trolley, boat, animal. or human a~ency or any other means except ·railways cir airways and includes. his agent : • Explanation : The manager or agent of a dealer who resides outside Orissa and who stores such goods shall be deemed to be a dealer for the purpose. of this' Act." • It is irue that during the .relevant quarters covering the period from :i0-9-1960 to 31-3-1962 it was the jute companies (the Principals) who carried on their jute business at Kendupatna within the State· of Orissa and that the appellant-company had no business of its own.anywhere in that State but it was looking after the business of the Principals as their agent at Kendupatna and such business inclu ded the operation of stocking or storing of jute in their. godowns at · Kendupatna and carrying the· same by motor boats but there is noth ing either in the main definition or in the Explanation to suggest that the manager or agerlt of the dealer (Principal) should have his own b11siness within the ·State of Oriisa before he could be proceeded against or assessed under the Act. In our view it would be sufficient if the .manager or agent of a non-resident. dealer. looks' after the operation of stocking or storing the jute of that non-resident dealer and carrying the same by motor' boats ·etc. within the State of Orissa. Apart from this aspect of the matter, the main thrust of Counsel's contentio~ has been that the manager 6r agent should at least reside or have a place of business within the State of Orissa before he could be proceeded against or assessed under the Act. On a plain reading of the Explanation that clearly is not-a requirem\:nt qua the manager or agent. Under the Explanation the manager or agent of a 'dealer' who resides outside the State is also deemed to be a 'dealer' for the purpose of the Act irrespective of whether be resides inside or out side the State. In other words the place of residence or of business of the manager or the agent is utterly irrelevant. Th~ artificial defi nition of a 'dealer' under the Explanation is merely an· enabling provision which. facilitates the asse\sme'nt against a non-resident dealer but the provision· does not require that the manager or the . agent should have either a residence or a place of busii1ess within the State of Orissa. Emphasis was laid by Counsel on the phrase 'who · A B c D E F G H • I .~· S72 SUPRliME COURT REPORTS · [i984l 1. S.C.R. stores s.uch .goods'. occurring in the Explanation· as referring to · manager or agent and it was submitted that the said phrase suggests that the manager or the agen( should have either residence or place ft is not. possible to accept of business within the State Of Orissa. this submission for the reason that all that the Expl.anation requires is that the manager or the agent should store such goods of the non resident 'dealer' within the State of Orissa but that cioes not mean thaftor such purpose the manager or the agent must either reside o~ have a place of business within the State of Orissa; even if he carries out the 6peration of stori~g the goods and carrying the same by motor boats within the State of Orissa from outside the State it would suffice. bn a fair reading of the main definition together with the Explanation. it seems ·to us quite clear' that the concept of resi dence or non-residence iS relevant qu2 the. principal who must be a non-residence dealer before his manager or agent could be proceeded 'against or . assessed urider the Act and it is uot the requirement of the provision that the manager or the agent of.a non-resident 'dealer' should have either residence. or. the .place of business within the State of Orissa. · • . The next.submissio.n o(Counsel for the appellant-company has been that the two principals namely Nellimarla and Chitavalsah who . 'are 'dealers' falling within the main definition could not be said to be non-resident dealers becaµse in the case of a company, unlike an individual every place·· where.it ·carries ·on its business would be a place of its residence and since admittedly each carried on business at certain places at Kendupatna in the State of Orissa during the rele vant quarters jt could not be said that they had been residing outside 'the State .. Elaborating this contention Counsel pointed out that the · ·. residenc~ of a company must be distinguished from its nationality and domicile. According to. Counsel the place of.registered" office . . of a company would be relevant for determining its nationality or domicile but it does not .determine the residence. Counsel pointed oul that in law a company· may have a dual residence or multiple ·residences depending· upon ·at how many places it carries on its businesses and this aspect Of the company's residooce. "issu, QJes consi derable relevance in the context of tax laws and since here thetwo Jute companies (the P1focipals) haci also places of business within the .. State ofOrissa, apart from having their.registered offices in Calcutta, they could be regarded as having their. residences within the State of Orissa and as such could no(be'regarded as no11·resident 'dealer'. A B c D E ' F. G H -· J.· ' .. J MBCLEOD AND co. v. OR.tSSA (Tu/zapurkar, J.) . 873 ·It is true that in rem~ct of an artificial person like a company the test to <;l~termine its· residonce. wi.11 have to be considered in the context of the Law.· prescribing the criteria in tbat behalf and would be different from the test that· determines its nationality or domicile. In Palmer's Company Law (2'.lrd Edn) Vol.I these three. ·concepts in relation to a company have been dealt wfth in paragraphs 8.10., 8.11 · . at pages 101 to 103 thus : • . 8.10 Nationality, ·domicile and residence of company . The situation of.the· registered office determines the' nationality and domicile of the company but i.t does not . determine its residence, _Where ·rules use these criteria and it is ob.vious that the rules.have to he applied to legai persons, ·it becomes necessary to apply these criteria by way of analogy from the case_of natural. persons. It is . obvious that a corporation. 'can no more have a domicile or residence than it can· marry_or have children. On the other hand, effect must be. given to the legal prescript, which. is clearly intended to cover the case of the ariilicial person' as well as· that of the natural person .. Here the task· of the courts is to interpret the.enactment in question in relation to the artificial person ..... ... f ...... ; .... Nationality • The nationality·of a comp~ny.is determined by the law of th~ country. in. which it is incorporated and from . whirh it. derives its personality. ' . In English law, nationality is rarely adopted as a legal test. · Domicile . The place of registration is like-wise the domicile of .a C<>mpany, and this domicile clings to it throughout its existence. It is;. however, possibie that by operation of. 0 · the Jaw or'the Company's domicile, another system oflaw may be substituted f~t the law of the place of registration. A B c D .E • F G H .. I 874 . SUPREME COURT REPORTS [1984] t s.c.il. domicile of choice. Unlike ari individual, a company cannot have a. , 'Residence

8.11 The residence ·of a company is not as easily • established as its nationality or its domicile. The test of residence is mainly used if questions pertaining to taxa tion, the character of the company as an overseas trading. corporation, service of process on the company and attri' · bution of enemy character to the· company arise. In these cases, the residence of the company is not .determined by the· application of a uniform test but a different meaning is given to those words in' each of them. Moreover, a company-like an individual-may have several residences at the same time, whereas it can have one domicile and . one nationaliiy only . A B • D Tax {-aw E F G H

8.12 In ta~ law ·a company is ordinarily resident where the. actual management of the company is carried on, even tliough it ought to be managed elsewhere accor ding to its constitution. If this is done at·. several places, the company has a dual.residence (or possibly even more residences), bur in that case at least some part of the superior and directing authority of the company must be present in the. country in which it is sought to establish the residence of the com'/any. • .. From what is stated above it will-be clear that so far as law of taxation is concerned-and in the instant case. we are concerned with t"a};l iaw, namely, t~e Orissa Taxation .Act-ordinarily the resi~ence of a company will be at the place where the actual management of the ·comp~ny is carried on and that if this is done at several places it may ,;have a dual residence b.ut in that ·case at least some p'art of the· s~perior and. directing authority of ~he company piust be present at the place w1!ere its residence is sou.ght to be established. · In Buckly on the Companie> Act (14th Edn.), VoL! at page 299 · the following passage occurs : : . t I -· MECLEOD AND co. v. ORISSA (Tulzapurkar, J.) 875 For the purpose of the Income Tax Acts, the place of registration of a company is not, any more than· the birth place of an individual, conclusive as to i.ts 'residence'. A company ·registered ·here (in England), with a registered office here, (in England) and governed by a board which ineefs here, is no doubt resident here. But also" a company registered abroad, whose head office and directors' meet ing ·are here, is resident here. The test of residence is not registration, btit where the compa'!Y does its real business, where the central management and control abides. It is the actual place of management of the c·ompany and not the place where it ought to be managed which fixes residence." The underlined portion in the passage quoted from Buckley is based on the· decision of the House of Lords iii the leading · case of Egyptian Delta Land and Investment Co .. v. Todd.(1) · In that _case the company was incorporated in England, had its registered office in England and fulfilled its statutory obligations in that country but had transferred. the whole of its business to Egypt ·which a was entirely controlled ·and _managed from. Cairo where the director ai).athe secretary permanently resided and the question arose whether for the purposes of Income Tax Acts the company could be regarded as a resident in England". After exhaustive survey of the earlier case law , on the point the House of Lo"rd took the view that the incorporation under th~ Comp.a.nies Acts, with the attendant statutory obligation~ · did not in itself, as a matter of· law, constitute a British company a person· iesidirig in the United Kingdom within ilie meaning of the Ii!come Tax Acts; that it was merely a factor to be consi pered in determining residence, and was a matter for the Commi ssioners to decide. It also too]< the view that it was settled by authority that the.residence of a c?mpany, whether British or foreign, for mcome tax purposes was, preponderantly and if not exclusively, determined by the place 'yhern its real qusiness was carried on and since the whole of the. oompany's business was controlled from. Cairo the company was not resident in England and it upheld the Commi· ssioners' decision of discharging the assessments. In taking the aforesaid view the House of Lords approved and followed.ihe criteria . that had been laid down in an earlier decision in the case of De Beers Consolidated Mines v .. Howe(') to the effec! "the test of residence is (I) [1929] A.C. !. (2) [1906] A.C. 455. A c D E .. G H ,>-- ~ ' ' t ~ ... ~- • (l984j 1 S.C.R. 876 SUPREME COURT REPORTS . . . no~ registration but where the company does its real business; where the central management and control abides." · A ' . . . . Applying. the ·aforesaid criteria to the facts Qf the present case . it was not disputed before us that both· the principals· (the jute companies) had their .registered offices in Calcutta (West Bengal), that their principal businesses were cartied oir .in Calcutta (West Bengal) and that the central management and control of the busi nesses was. done from Cal~utta. It is true that these two jute companies. had storage equipment and godowns at Kendupatna in the State of Orissa but ori their own showing (vide certificates of Registration) at kendupatna they had 'additional places ·of busi· . . ' . nesses. It was not even· the appellant company's case that the central m.a:nagement and .the control of t.he two jute companies' ·businesses was in .. the State of Ofissa. The test laid down in the.· House of Lords' decision does not suggest that at every place where some business. of the compl\nY is carried ·on it shail have its residence there. As poinied out above, the central 111anagemcnt and. contro I · · of the two companies' businesses. obtained in Calcutta (West ·Bengal} · and that being the position the two jute companies would be non· reside11t dealers in th.e State of Orissa .. The se.cond contention of the . counsel for the appella.it company, therefore, fails; . . In the result we are bf the view that t]1e High Court was right in coming to the conclusion tliat the appellant-company was a dealcrf' with\n .the meaning of s.2(5) .read with the Explanation thereto of the Qrfssa Taxation Act, 1959. The. ·appeal is, therefore, dismis~ed • with. costs. · c D E F H.S.K. Appeal dismissed . • .. t x \ .,. ,, + '